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2025 (6) TMI 1311 - AT - Income TaxCash deposits in saving bank account u/s 68 - gift received from blood relation and receipts of agricultural income - HELD THAT -Assessee has not presented any strong argument in respect of the addition made u/s 68 in respect of impugned cash deposits but his grievance is that the addition should be restricted to the peak credit to the extent of Rs.15, 27, 000/- instead of the entire amount of cash deposits of Rs. 41, 07, 000/-. We find force in this argument of the Ld. AR. In support of the said claim the Ld AR has filed the details/ submission along with a chart demonstrating the working of such peak credit. Perusal thereof reveals that the same requires verification as these have not been examined by the Ld. AO/CIT(A). In this view of the matter we deem it fit and proper to restore the impugned issue to the file of the AO with a direction to restrict the addition to the peak credit taking into consideration the claim made by the assessee after due verification thereof as per facts and law. Needless to say the assessee shall be granted reasonable opportunity of being heard by AO to present and substantiate his claim by submitting the relevant documents/evidence as may be required/called upon during the fresh proceedings before the Ld. AO. The order of the Ld. CIT(A) is hereby set aside and the matter is restored back to the file of Ld. AO for de-novo adjudication in terms of our directions above. Assessee is partly allowed for statistical purposes.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this appeal are: (a) Whether the addition of Rs. 41,07,000/- made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961 (the "Act") on account of unexplained cash deposits in the bank account of the assessee is justified, given that the bank account is not the books of account of the assessee; (b) Whether the entire amount of cash deposits is from explained sources, thereby negating any addition under section 68; (c) Whether, if any addition is to be made, it should be restricted to the peak credit in the bank account rather than the gross amount of deposits, to avoid double taxation of the same amount; (d) Ancillary issues regarding the evidentiary requirements for explaining cash deposits, the applicability of relevant legal precedents, and the procedural correctness of the assessment under sections 147/144/144B of the Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a): Whether addition under section 68 is sustainable when the bank account is not the books of account of the assessee Legal Framework and Precedents: Section 68 of the Act deals with unexplained cash credits. The question arises whether bank statements or passbooks, which are not strictly books of account, can be the basis for addition under section 68. The assessee relied on a 1982 Mumbai High Court decision which held that bank passbooks are not part of books of account and thus cannot be used for addition under section 68. However, the Court noted that the definition of "books of account" was not codified at that time. Subsequently, Section 2(12A) was introduced by the Finance Act, 2001, defining "books or books of account" inclusively to cover ledgers, day-books, cash books, account-books, and also printouts or electronic data storage. This expanded definition supports the inclusion of bank statements or printouts thereof within the ambit of books of account. The Delhi High Court in Shashi Garg vs. PCIT (2011-12 AY) upheld additions under section 68 on unexplained cash deposits in bank accounts, and the Supreme Court dismissed the Special Leave Petition (SLP) against this decision, reinforcing the principle that unexplained cash deposits in bank accounts can be subjected to addition under section 68. Court's Interpretation and Reasoning: The Court distinguished the earlier Mumbai High Court ruling on the basis of the expanded statutory definition. It held that the bank account statements are now considered part of the books of account for the purposes of section 68. Thus, the AO was justified in making additions based on cash deposits reflected in the bank account. Key Evidence and Findings: The assessee failed to file a return of income or provide documentary evidence to explain the source of cash deposits. The AO issued notices under sections 148 and 142(1), but the assessee did not comply substantively. The assessee claimed the deposits were from gifts from blood relations and agricultural income but did not submit PAN details, confirmations from donors, landholding evidence, or crop production details. Application of Law to Facts: Since the assessee failed to substantiate the sources of cash deposits with credible documentary evidence, the AO's addition under section 68 stands on firm footing. The Court emphasized that the purpose of the statute is to bring unexplained income into the tax net. Treatment of Competing Arguments: The assessee's argument that bank statements are not books of account was rejected on statutory and judicial precedent grounds. The Court also noted that mere statements without documentary proof are insufficient to explain cash credits. Conclusion: The addition under section 68 on the basis of cash deposits in the bank account is legally sustainable. Issue (b): Whether the entire cash deposits are from explained sources and hence no addition is called for Legal Framework and Precedents: Under section 68, the assessee must satisfactorily explain the nature and source of cash credits. The explanation must be supported by credible documentary evidence. Unsupported assertions do not meet the standard of proof. Court's Interpretation and Reasoning: The Court found that the assessee's explanations of gifts and agricultural income were not supported by documentary evidence such as PAN details of donors, confirmations, or landholding and crop production records. The Court observed that the assessee did not submit any cash flow statements or other evidence to justify the deposits. Key Evidence and Findings: The AO's show cause notice remained unresponded to substantively. The bank statement showed continuous cash deposits over six months with withdrawals and RTGS transfers, none of which were explained. Application of Law to Facts: The failure to provide documentary evidence meant the sources remained unexplained. The Court reiterated that unexplained cash deposits are liable to be treated as income under section 68. Treatment of Competing Arguments: The Court rejected the assessee's claim that the deposits were from explained sources due to lack of evidence. Conclusion: The entire cash deposits cannot be treated as explained sources; addition under section 68 is justified. Issue (c): Whether addition, if any, should be restricted to peak credit to avoid double taxation Legal Framework and Precedents: The concept of peak credit is recognized in tax jurisprudence to avoid taxing the same amount multiple times when deposits and withdrawals occur in the same account. The principle is that only the maximum balance (peak credit) during the period should be considered for addition, not the aggregate of all deposits. Relevant ITAT decisions cited include B. Jenson Thanaraj, Maheshkumar Jayantilal Vora, and Venkat Reddy, where additions were restricted to peak credit. Court's Interpretation and Reasoning: The CIT(A) rejected the claim for restricting addition to peak credit on the ground that the assessee did not explain the purpose of withdrawals vis-`a-vis deposits, nor provided any cash flow working. However, the Tribunal found merit in the assessee's contention that taxing the gross deposits would amount to double taxation. The Tribunal noted that the AO and CIT(A) had not examined the peak credit computation submitted by the assessee. It directed the matter to be restored to the AO for de novo adjudication on this issue, allowing the assessee to substantiate the claim with relevant documents and evidence. Key Evidence and Findings: The assessee submitted a detailed chart showing cash deposits, withdrawals, and balances, indicating a peak credit of Rs. 15,27,000/- as opposed to the gross deposit of Rs. 41,07,000/-. Application of Law to Facts: The Tribunal emphasized the need for verification of the peak credit claim by the AO with opportunity to the assessee to present evidence. The principle of avoiding double taxation by restricting addition to peak credit was accepted as valid. Treatment of Competing Arguments: The Revenue opposed the restriction on grounds of insufficient substantiation. The Tribunal balanced this by restoring the issue for fresh consideration with directions to allow the assessee to produce evidence. Conclusion: The addition under section 68 should be restricted to peak credit subject to verification and substantiation by the assessee. The matter is remanded to the AO for fresh adjudication. Other Issues: The Court noted that the AO had treated the addition under section 68, whereas, in some cases, section 69 or 69A may be more appropriate for unexplained deposits. The CIT(A) observed that the Commissioner of Income Tax (Appeals) can direct the AO to charge the relevant sums under the correct provisions based on general principles. However, this procedural aspect did not alter the substantive finding of unexplained cash credits. 3. SIGNIFICANT HOLDINGS "The word 'books of account' is not defined during the relevant assessment year in which the earlier High Court order was delivered. Later, Section 2 (12A) was introduced in the Act defining books or books of account by the Finance Act, 2001 with effect from 01.06.2001 and the same reads as follows: '(12A) "books or books of account" includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device.' The above definition is inclusive and includes printouts of data stored in electronic form." "The Hon'ble Delhi High Court in the case of Shashi Garg vs. PCIT has justified the addition made where the appellant has failed to explain the source of cash deposit in the bank account. The Hon'ble Supreme Court has dismissed the SLP of the assessee." "Mere statement that in order to obtain the dealership in petrol diesel, he was negotiating with the company officials and was required to show the bank balance/availability of funds to the company officials cannot be relied upon. There is no documentary evidence to prove that there was any such compulsion from the company." "No benefit of peak credit is possible as no purpose of the withdrawals as against the cash deposits has been explained by the assessee. No working of the cash flow has been provided. It is for the appellant assessee to give the complete details and supporting documentary evidences for its claim." "The addition could not be deleted merely on a technical ground and that the peculiar facts of the case did not warrant any relief to the assessee." "We find force in the argument of the Ld. AR that the addition should be restricted to the peak credit to the extent of Rs. 15,27,000/- instead of the entire amount of cash deposits of Rs. 41,07,000/-. The details require verification as these have not been examined by the Ld. AO/CIT(A). In this view of the matter, we deem it fit and proper, to restore the impugned issue to the file of the Ld. AO with a direction to restrict the addition to the peak credit taking into consideration the claim made by the assessee after due verification thereof, as per facts and law." Core principles established include:
Final determinations:
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